Private Banker International’s roundtable on the UHNW market revealed some startling insights. Held in the renowned financial hub of London, the event focussed on how to best serve UHNWIs and retain best talent in a competitive environment. A select group of industry experts and leaders discussed the constant shifting of needs from wealthy families and individuals, how the wealthy are categorised, the increasing relevance of technology in the industry, the consequences of regulation and much more.
| PwC | Ian Woodhouse | Director – Private Banking and Wealth Management |
| The Capital Partnership | Zeiad Idris | VP-New Business Development & Private Equity |
| Unigestion El Oro | Magdalena Rodriguez Cotman |
Executive Director |
| Family Office | Melwin Metha | Investment Manager |
| BNP Paribas Wealth Management | Remi Frank | Head of Key Client Group & Professional Banking |
Mark Foxwell: How would you categorize the UHNW market globally and the family office market? Would it be in terms of geographies or business models?
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Ian Woodhouse: We start with the geography and client status and assume that they’re of a certain size. Then it’s whether they’re residential, non-residential, non-dom etc. We very much look at the source of wealth so that helps us to understand the HNW individuals or families, whether it’s inherited or entrepreneurial wealth. Then we look at core areas. For example, asset management is obviously a core area, custody is also increasingly core.
Remi Frank: The first priority is the nationality and country of the client. This is much more important than the place or tax residence. We have clients living in Switzerland but we wouldn’t necessarily treat them as if they were in the Swiss market. We have dedicated relationship managers for Russians in Switzerland, for French, for Middle Eastern, you name it. And really, I think the first thing is the nationality of the client wherever he lives because they want us to base it on culture. They want either to actively manage their wealth or have a family office manage it; we don’t have the same type of services that they give them. Some prefer to be treated as if they were financial institutions. Sometimes they are actually bigger than certain financial institutions. And then you have differences from country to country. For example, if you look at an emerging market like China, for instance. In China you have so much opportunity to do business. You have to understand the mentality and the momentum of the each country.
Ian Woodhouse: I also think a big area for us is the risk taken versus the return received. I think we are now distinguishing more between client risk and product risk. Many Chinese investors are new to wealth and they’re entrepreneurs by nature so they are kind of willing to take risks that perhaps the more established families might not take.
The talent pool
Mark Foxwell: More on the family office side, what skills do family offices look for when they appoint someone, non-family members, to a family office? What kind of attributes or skills would you look for if you’re looking to hire?
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By GlobalDataRemi Frank: I frankly think the relationship between the finance owner and his appointed family office is more important than the skills.
Zeiad Idris: I think it depends on who you’re dealing with. If it’s an institution or a sophisticated family, experience is what matters, but when you’re dealing with a family whose wealth is trapped inside a business that they own and they’re trying to diversify, absolutely it’s the trust that matters and their relationship with the individual. We actually recruit someone to bridge that element in between because even if we provide the skill set, we have to recruit someone that they trust and are used to working with.
Mark Foxwell: Remi, you have vast amounts of capabilities and offerings for UHNWIs. You have a full spectrum of investment banking. Are there any areas in particular that you’re seeing growth resulting from the full service package? Or are there any areas you’d like to see increase their investment banking capabilities?
Remi Frank: We are a unique banking group. BNP has one of the biggest real estate brokers, the top one in France and Germany. For private individuals, it is very difficult to get access to the real estate market as brokers prefer to deal with institutions. They are more used to it, it’s faster, but, at the end of the day, they are brokers, and they want to have some turnover, so we have a big chance within BNP Paribas.
Mark Foxwell: With family offices how do they choose their external partners like BNP? What would you look at? Would you look at size, strengths, branding?
Zeiad Idris: Obviously, it depends on what we believe our clients would be interested in. It’s also important that we play a role in the decision making with the firm that we’re partnering with. We tend to go with more boutique firms. The other element is getting our clients into investments that they wouldn’t traditionally have access to or wouldn’t be able to get access to. As an example, we have very good relationships with a lot of firms in Silicon Valley and we were one of the very first investors in a lot of today’s big tech giants. That’s come out of the relationships and credibility that we have with those firms or their founders.
Melwin Metha: When you talk about family offices this one word of trust always comes from professionals rather than the family office members themselves. I think what professionals forget is that it doesn’t matter if you earn 120 million or 120 billion, you’re a human being. You want to deal with people that you trust. You need to be trustworthy or you’re not going go anywhere in life. Skill set very much comes after that.
Mark Foxwell: BNP has obviously got some very successful RMs touching on trust and rapport. How do you retain those people in the company? How do you make sure you have the same calibre of people coming into the bank?
Remi Frank: To retain them, we try to improve what they can bring to their clients. These guys are strongly attached to their clients as well as to BNP Paribas. If they move to another bank, it’s most likely so they can provide a better service for their clients. So, the best way to retain these RMs is to continuously increase and improve what we put at their disposal for their clients. No matter the RM, if it is a good bank, you are also creating a relationship with the bank. Stability with the bank brings stability in the relationship, and that’s very important.
Mark Foxwell: Has flow stopped in terms of bankers moving between banks in the last few years or is that trend still there?
Remi Frank: I think that the only place where we still see it is Asia. In Asia, you have lots of turnover. Historically, for all business, turnover is greater in Asia than in Europe and clients are used to it. But if we are looking at China, it is in the first generation of wealth, so they follow RMs once, they follow twice, but if it goes to a fourth or fifth, I don’t believe they will follow again.
Mark Foxwell: Isn’t there a big problem in Asia, in regards to there being a lack of skilled RMs?
Remi Frank: It’s not a lack of skill; the population is just so big. When you look at the rate of growth for HNWIs, it’s higher than the population’s. They have talent, but they don’t have enough to follow this growth.
Ian Woodhouse: What you need to consider is that there is a competitive restructuring underway and the growth of new entrants and specialist firms. Then you have a group of middle or limited providers, which are probably pan-regional, and you have lots of specialists. We shouldn’t forget that the concept of family offices in some jurisdictions is relatively new, but it’s growing. Above all, there’s a significant demographic shift in the creation of wealth. Effectively, Europe is more mature than other regions and that’s due to generational transfer. The Far East, as an example, would be experimenting; their market is much more fluid. This requires new skills, it requires better IT skills from RMs, dealing with new technology, understanding regulation and compliance, what we can and cannot do, more investment expertise. The big issue is perhaps beyond retention and more on where we are going to get the skills from for the next five years. I do worry whether we will have sufficient talent of the right calibre. We invest a lot in trying to figure out where we get that talent from.
Zeiad Idris: I think it’s important to develop the talent internally because if you try to take people from outside, you don’t have the same values and culture that you have inside your own firm. At least in the Middle East, it’s very important to develop your own talent, that’s key.
Remi Frank: It is true. Even for young clients, let’s say an entrepreneur who is 35-40 years old and very successful, if you put in front of him an RM who is 30 years old or less, it’s difficult. We also prefer to train our own people, but you also have this age issue, it’s very difficult to become a real private banker for UHNWIs before reaching 35 years of age.
Zeiad Idris: I think it really depends. You get some young high fliers and you get some older wealth managers who are not very good and are stuck in their old ways. It just really depends, but I think the key element for me is that it is very difficult to find good people you do want to develop and train. I think it’s the same anywhere. Yes, London is a great talent pool, but that’s not always the best talent pool to get people from for the market that you work in. We have clients from China and from the Middle East and you do have to develop people from that market.
Upgrading technology
Mark Foxwell: What kind of platforms and technology are you introducing to cater for the next generation? How are you planning to adapt and cater for their needs?
Remi Frank: We have plenty of ideas and we are testing them out with our clients. We are not sure of what they expect from a bank in this area because they already all on Facebook and other social networking sites, do they really want to be connected with their peers on another one? It’s not obvious, we are not sure.
Melwin Metha: I think especially in finance it really depends on where you are. If you’re looking for information on social media, I think that’s not the right place to be. The only people who would be interested in social media are people in their teens or twenties and not making investment decisions. There are people innovating for the sake of innovating. I don’t think you’re going to go anywhere with that.
Ian Woodhouse: We’re going to see big change because we’re in an era of evolving technology. Even IT companies are struggling to keep up with this change. I think the banks generally have been a bit slower than some other industries. What we’ll find is that these new technologies offer far greater opportunities for collaboration with family offices. That’s both positive and negative because many families have lots of members so it’s a great tool for them families to connect with one another. Even within the banks, our experience is that there is a great difference on the ability of the banks to offer the technology abled solutions.
Melwin Metha: Obviously, the new generation are more comfortable with new technology by default and are much keener to stay updated and would like to co-pilot with their investment manager.
Ian Woodhouse: The way forward is using the new technology, and creative re-pricing, to help the valued added services. You will see an evolution in the industry where we will want to charge fees for active advisory. If you link that with new technologies, what we should be able to do is to be able to offer the clients a real-time dialogue. This will lead to a combination of data protection rules and the industry will get more and more standards.
Remi Frank: I really disagree. When we compare what the regulators are doing in the various countries, which is very often contradictory from one to the other, I don’t believe we’re going towards standardisation. We are going to see much more local regulation. We find contradictions which are hard to manage globally and, for me, I don’t see any global standard. When you look just in Europe, between Switzerland, Italy, Belgium and UK, they have nothing to do with one another.
Melwin Metha: I think regulation has obviously killed any sort of entrepreneurship that had developed in the wealth management and asset management space. Of course we need regulation, of course we do. As humans, we are not self-disciplined, we require red lights otherwise it would be madness, we require regulation, but it can’t be against common sense. I think similarly with RDR, a whole segment of private wealth clients are considered too small to cater to and anybody who’s got less than 250 or 300 thousand is not worth the time or the effort. Of course, we require regulation, but we are going from one extreme to the other and it is destroying this industry.
Resulting regulation
Mark Foxwell: Do you think regulation is more for the institutions and less for the clients?
Ian Woodhouse: For me, the regulators may have done us a favour especially if you look at RDR and what it actually did in the UK. First of all, it professionalised an industry which was not professional. You didn’t need any qualifications to be an adviser in the UK. It has helped to create more of a professional standard. The second thing is, like it or not, misselling in the UK industry has been nothing short of appalling. Clients who were retail were given structured products and told there was no risk. The sales process was poor. Suddenly, everything goes wrong and the clients were told that there was no risk. The industry’s probably not done a great job in terms of suitability and correctness so this is why we have a focus on client conduct going forward. I think it’s really good that the regulators are splitting off conduct risk vs credential risk. Progressively, I think when we introduce standards, it’s better for the whole industry.
Melwin Metha: I’m sorry but I disagree because investment is not a game in which you can read one book and know. It’s a game of experience. Don’t get me wrong, I am for qualifications, I’m sure you’re a chartered account and have studied hard for exams, of course we require qualifications, but to say that a person who is not qualified but has 30 years of experience is inferior to the person who is qualified with no experience, I think that’s a completely wrong stand.
Ian Woodhouse: On experience and standards, I think the two go hand in hand. What I’m saying is that there’s a number of shifts on the way and I think we will benefit. One is the great experience, second is the standards, third is the ability for all of us to migrate to high value added advice and charge for it. I don’t think that’s a bad thing, I think it’s a tremendous opportunity.
